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2014 (12) TMI 562 - ITAT HYDERABADClaim of bad debts written off - Waiver of interest u/s 36(vii) – Held that:- CIT(A) rightly observed that the only dispute between assessee and department is in respect of working out 10% of aggregate average rural advances - while assessee has made such working by considering the entire outstanding advances at the end of each month, AO has worked out by considering the aggregate average rural advances of each month and not on the entire outstanding advances - a perusal of the provision contained u/s 36(1)(viia) and rule 6ABA, would make it clear that the 10% of aggregate average advances has to be worked out on the entire outstanding advances and not the advances of that month alone. Quantum of deduction u/s 36 (1)(vii) and 36(1) (viia) – Held that:- An assessee can claim deduction under both the clauses subject to the condition imposed under the proviso to 36(1)(vii) - CIT(A) rightly deleted the addition of ₹ 3,88,25,673 - as far as deduction of ₹ 18,79,704 is concerned, the same cannot be allowed u/s 36(1)(vii) considering the fact such amount has not exceeded the provision for bad and doubtful debts u/s 36(1)(viia) - the amount was waived at the direction of the State Govt. Department has not controverted this fact - the waiver of interest at the instance of the State Government, has to be allowed as business expenditure u/s 37(1) - the order of CIT(A) is upheld in deleting addition – Decided against revenue. Deletion of provision of audit fee – Held that:- AO has disallowed the deduction claimed for the reason that the provision has been created for an unascertained liability whereas CIT(A) has allowed assessee’s claim by holding that the liability has already accrued - as on 31/03/06, there is an outstanding demand of ₹ 39,36,734 on account of audit fees whereas an amount of ₹ 14,41,903 was raised during the FY 2006- 07 - the audit fee does not relate to the current AY -without examining as to whether the expenditure relates to the current year, CIT(A) was not justified in allowing assessee’s claim – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for verification – Decided partly in favour of revenue. Eligibility of deduction on long term advances u/s 36(1)(viii) – Held that:- CIT(A) rightly held that the deduction has to be worked out on the basis of total outstanding advances and not the outstanding advances of the year alone - the provisions of section 36(1)(viii) cannot be interpreted in a manner to suggest that 20% of the deduction has to be worked out only on the advances given during the year – the order of the CIT(A) is upheld – Decided against revenue. Waiver of interest to primary agricultural cooperative societies (PACS) disallowed – Held that:- Assessee claimed that the amount claimed as deduction is not in the nature of bad debts, but, is actually a business expenditure allowable u/s 37(1) - even if it is considered as bad debt u/s 36(1)(vii), the proviso to section 36(1)(vii) will not apply, since the said amount is to be debited to provision/reserve for bad debt reserve account and if it is so debited, then, the same will still be allowable u/s 36(1)(viia) – thus, the assessee’s claim of deduction of the interest waived amounting to ₹ 5,84,360 deserves to be allowed – the AO is directed to delete the addition – Decided in favour of assessee. Restriction of expenses to ₹ 2,26,16,355 in place of ₹ 3,12,31,869 – Held that:- Assessee has to bear a share in the relief package given to PACS on account of loss incurred due to waiver of interest to small and marginal farmers - the expenditure incurred is not strictly in the nature of bad debts written off but in the nature of expenditure provided u/s 37(1) - assessee has no other option but to incur the expenditure as per the directive of the Govt. as well as APCOB - the amount of ₹ 3,12,31,869 is allowable as business expenditure - Since the CIT(A) has already allowed expenditure to the extent of ₹ 2,26,16,355, the balance amount of ₹ 86,15,514 is directed to be allowed – Decided in favour of assessee. Deduction claimed towards miscellaneous reserves created disallowed – Held that:- Assessee contended that as per the provisions of section 36(1)(viii) assessee is eligible for deduction for an amount of ₹ 79,39,000 whereas deduction to the extent of ₹ 14,21,432 has been allowed to assessee, hence, assessee remains eligible to claim deduction u/s 36(1)(viii) to the extent of ₹ 65,17,568 - The only restriction imposed as per proviso to section 36(1)(viii) is aggregate of amount carried to such reserve account should not exceed twice the amount of paid up share capital and general reserve - Therefore, it cannot be said that the items appearing in the miscellaneous reserve cannot be treated as special reserves as there is nothing in the provision to suggest that only statutory reserves can be treated as special reserve - considering the fact that assessee is eligible to claim deduction u/s 36(1)(viii) to the extent of ₹ 79,39,000 out of which an amount of ₹ 14,21,432 has already been allowed, assessee is entitled to claim deduction of the balance amount of ₹ 65,17,568 – the AO is directed to allow the deduction – Decided in favour of assessee.
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